EX-99.1 2 sfly-12312016xresultsrelea.htm EXHIBIT 99.1 Exhibit
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Shutterfly Announces Fourth Quarter and Full Year 2016 Financial Results

●
Full Year 2016 net revenues increased 7% year-over-year to $1.13 billion
●
Full Year net income of $15.9 million
●
New focus on four strategic areas announced, supported by 2017 restructuring
●
Significant increases in profitability and quality of earnings in 2017 and 2018 support reinvestment towards sustainable growth

REDWOOD CITY, Calif. February 1, 2017 -- Shutterfly, Inc. (NASDAQ:SFLY), the leading online retailer and manufacturer of high-quality personalized products and services, today announced financial results for the fourth quarter ended December 31, 2016. At the same time, the Company announced a new vision built around four strategic areas.  Over the course of 2017, Shutterfly, Inc. will restructure to focus resources on these high-potential opportunities.

2016 Full Year Financial Performance
●
Net revenues totaled $1.13 billion, compared to $1.06 billion in 2015.
●
Adjusted EBITDA totaled $208.5 million, compared to $192.0 million in 2015.
●
GAAP operating income of $49.1 million, compared to $18.3 million in 2015.
●
Net income per share was $0.45, compared to a net loss per share of $(0.02) in 2015.

"We’re proud of our 2016 delivery against key initiatives, particularly Shutterfly Business Solutions, mobile, and product range expansion, as well as our continued progress on Operating Income, which more than doubled year-over-year,” said Christopher North, president and Chief Executive Officer of Shutterfly.  “At the same time, Consumer growth came towards the low end of our guidance, and Adjusted EBITDA slightly below guidance, as Shutterfly-brand growth was offset by revenue declines in the Tiny Prints, Wedding Paper Divas, MyPublisher, and BorrowLenses brands.”

“To drive sustainable growth and long-term value creation, we’re announcing plans today to significantly simplify our Consumer business in 2017 as the first step in our longer-term strategy,” added North.

Shutterfly shared its vision for the future.  The Company’s Consumer vision is to help people share life’s joy by being the leading online retailer and manufacturer of high-quality personalized products.  This is complemented by the Company’s Enterprise vision of being the leading digital manufacturing platform for business.  To support this vision, Shutterfly announced four areas of strategic focus going forward: (1) make purchasing personalized products simple, (2) expand our range of categories and products, (3) pivot towards mobile, and (4) leverage our manufacturing platform.

To focus resources on these four components of the strategic plan, Shutterfly will restructure in 2017, with the following changes occurring over the course of the year:
●
Shutterfly is re-investing in Tiny Prints as its premium cards & stationery brand, creating a Tiny Prints boutique on a dedicated tab on Shutterfly.com later this year.

1

●
The new Shutterfly Wedding Store will be the focus of the Company’s wedding strategy, including a premium Wedding Paper Divas-branded stationery collection. 
●
The MyPublisher brand will be retired in favor of the industry leading Shutterfly Photo Books category.
●
Current Tiny Prints, Wedding Paper Divas, and MyPublisher customers will migrate to Shutterfly.com and the legacy websites will shut down.
●
Three very small businesses, TripPix and FavePix, as well as the Shutterfly Pro Gallery service will be shut down.
●
Santa Clara-based teams will be consolidated into Redwood City corporate headquarters.  The Santa Clara office and both New York locations will be closed.
●
Headcount will be reduced by approximately 13% or 260 employees.
●
The transition will happen over the course of the first three quarters of 2017 and is expected to be complete before the holiday peak season. 
●
BorrowLenses will undertake a strategic review for possible sale.
●
Going forward, Shutterfly will invest in a single Consumer platform, with all customers benefiting from continued investment in the Shutterfly.com site. 

As a result of these changes, the Company expects to incur restructuring charges over the course of 2017 ranging from $15 million to $20 million.

“Our vision is strongly motivated by the belief that sustainable growth comes from innovating on behalf of customers over the long term.  At the same time, our plan strikes a balance between investing for growth and delivering improvements in profitability.  In each of 2017 and 2018, we will deliver sequential improvements in profitability as well as quality of earnings, while funding re-investment in the business to drive growth in 2019 and beyond,” North concluded.

Fourth Quarter 2016 Financial Highlights
●
Net revenues totaled $561.2 million, a 2% year-over-year increase.
●
Consumer net revenues totaled $521.5 million, a 4% year-over-year increase.
●
Shutterfly Business Solutions (SBS) net revenues totaled $39.7 million, an 11% year-over-year decrease.
●
Excluding one-time SBS shipping pass through revenue of $14.0 million in the fourth quarter of 2015, SBS net revenues increased 29% year-over-year.
●
Gross profit margin was 59.0% of net revenues, compared to 58.3% in the fourth quarter of 2015.
●
Excluding the effect of one-time SBS shipping revenue in the fourth quarter of 2015, gross profit margin decreased 80 basis points year-over-year.
●
Excluding the effect of one-time SBS shipping revenue in the fourth quarter of 2015, SBS gross profit margin increased 300 basis points year-over-year.
●
Operating expenses totaled $177.4 million, compared to $177.4 million in the fourth quarter of 2015.

2

●
Operating income totaled $153.8 million, compared to $141.9 million in the fourth quarter of 2015.
●
Net income was $91.0 million, compared to $131.1 million in the fourth quarter of 2015.
●
Net income in the fourth quarter decreased by $40.1 million in 2016 due to a tax rate true-up in the fourth quarter of 2015 which positively impacted net income in the prior year.
●
Net income per share was $2.63, compared to $3.57 in the fourth quarter of 2015.
●
Adjusted EBITDA was $194.8 million, compared to $181.6 million in the fourth quarter of 2015.
●
In the fourth quarter of 2016, the Company repurchased 463,851 shares for $21.6 million, at an average price of $46.68 under its share repurchase program.

Full Year 2016 Financial Highlights
●
Net revenues totaled $1.13 billion, a 7% year-over-year increase.
●
Consumer net revenues totaled $997.6 million, a 4% year-over-year increase.
●
SBS net revenues totaled $136.7 million, a 39% year-over-year increase.
●
Gross profit margin was 50.1% of net revenues, compared to 50.2% in 2015.
●
Operating expenses totaled $519.0 million, compared to $513.1 million in 2015.
●
Operating income totaled $49.1 million, compared to $18.3 million in 2015.
●
Net income was $15.9 million, compared to a net loss of $(0.8) million in 2015.
●
Net income per share was $0.45, compared to a net loss per share of $(0.02) in 2015.
●
Adjusted EBITDA was $208.5 million, compared to $192.0 million in 2015.
●
At December 31, 2016, cash and investments totaled $330.1 million.
●
Total capital expenditures totaled $75.6 million, compared to $81.4 million in 2015.[1] 
●
Adjusted EBITDA minus capital expenditures[2] was $132.9 million, compared to $110.6 million in 2015.
●
During 2016, the Company repurchased approximately 2.5 million shares for $112.5 million, at an average price of $44.55 under its share repurchase program. As of December 31, 2016, $82.8 million remained authorized under the repurchase program.

[1] Total capital expenditures of $75.6 million excludes $9.8 million related to printers that were acquired and immediately sold in the second quarter of 2016.
[2] Adjusted EBITDA minus capital expenditures was referred to as "free cash flow" prior to the fourth quarter of 2016.
Fourth Quarter 2016 Consumer Operating Metrics
●
Transacting customers totaled 6.2 million, an increase of 1% year-over-year.
●
Orders totaled 10.9 million, an increase of 6% year-over-year.
●
Average order value was $47.98, a decrease of 2% year-over-year.


3

Full Year 2016 Consumer Operating Metrics
●
Transacting customers totaled 10.1 million, an increase of 4% year-over-year.
●
Orders totaled 27.1 million, an increase of 5% year-over-year.
●
Average order value was $36.80, a decrease of 1% year-over-year.

Business Outlook [3] 
First Quarter 2017:
●
Net revenues to range from $185.0 million to $190.0 million.
●
Gross profit margin to range from 37.0% to 37.5% of net revenues.
●
Operating loss to range from $(48.0) million to $(45.5) million.
●
Effective tax rate of 37.5%.
●
Net loss per share to range from $(1.00) to $(0.95).
●
Weighted average shares of approximately 33.7 million.
●
Adjusted EBITDA loss to range from $(7.0) million to $(4.5) million.

Full Year 2017:
●
Net revenues to range from $1.135 billion to $1.165 billion.[4] 
●
Gross profit margin to range from 49.0% to 50.0% of net revenues.
●
Operating income to range from $48.5 million to $68.5 million.
●
Effective tax rate of 37.5%.
●
Net income per share to range from $0.45 to $0.80.
●
Weighted average shares of approximately 34.5 million.
●
Adjusted EBITDA to range from $210.0 million to $230.0 million.
●
Capital expenditures to be approximately $75.0 million.

“In an effort to provide a view into the full benefits of the changes we are making, we are providing high level thoughts for 2018, our first full year operating after the restructuring. For 2018, we are targeting an increase to total net revenues of approximately $70.0 million driven by continued growth in SBS of approximately 20% and mid-single digit growth in Consumer.  We are targeting an increase to GAAP gross profit of approximately $40.0 million and an increase to both Adjusted EBITDA and GAAP Operating Income of approximately $50.0 million. We are targeting capital expenditures to remain flat at approximately $75.0 million.  No restructuring charges are expected in 2018, ” said Mike Pope, Chief Financial Officer of Shutterfly.


[3] Excludes restructuring charges ranging from $15 million to $20 million as well as any costs related to refinancing our convertible debt.
[4] In 2017, net revenues from SBS segment to increase 20% over 2016.

4

Notes to the Fourth Quarter 2016 Financial Results and Operating Metrics and 2017 Business Outlook
Adjusted EBITDA is a non-GAAP financial measure that the Company defines as earnings before interest, taxes, depreciation, amortization and stock-based compensation.
Adjusted EBITDA minus capital expenditures is a non-GAAP financial measure that the Company defines as adjusted EBITDA less purchases of property, plant, and equipment and capitalization of software development costs. This measure was referred to as "free cash flow" prior to the fourth quarter of 2016.
Consumer segment includes net revenues from stationery and greeting cards, photo books, calendars and photo-based merchandise, photo prints, and the related shipping revenues and rental revenue. Consumer also includes net revenues from advertising and sponsorship programs. 
Shutterfly Business Solutions (SBS) includes net revenues primarily from variable, four-color direct marketing collateral manufactured and fulfilled for business customers.
Average Order Value (AOV) is defined as total net revenues (excluding SBS) divided by total orders.
The foregoing financial guidance replaces any of the Company’s previously issued financial guidance which should no longer be relied upon.

Fourth Quarter Conference Call
Management will review the fourth quarter 2016 financial results and its expectations for the first quarter and full year 2017 on a conference call on Wednesday, February 1, 2017 at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time).  To listen to the call and view the accompanying slides, please visit http://www.shutterflyinc.com. In the Investor Relations area, click on the link provided for the webcast, or dial (888) 317-6003 or (412) 317-6061, and enter the conference access code 9725499.  The webcast will be archived and available at http://www.shutterflyinc.com in the investor relations section.  A replay of the conference call will be available through Wednesday, February 15, 2017. To hear the replay, please dial (877) 344-7529 or (412) 317-0088, and enter access code 10098795.
 
Non-GAAP Financial Information
This press release contains non-GAAP financial measures.  Tables are provided at the end of this press release that reconcile the non-GAAP financial measures that the Company uses to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP).  These non-GAAP financial measures include non-GAAP gross profit margin, non-GAAP operating income (loss) and operating margin, adjusted EBITDA, and adjusted EBITDA minus capital expenditures. The method the Company uses to produce non-GAAP financial measures is not computed according to GAAP and may differ from methods used by other companies.
 
To supplement the Company's consolidated financial statements presented on a GAAP basis, we believe that these non-GAAP measures provide useful information about the Company's core operating results and thus are appropriate to enhance the overall understanding of the Company's past financial performance and its prospects for the future. These adjustments to the Company's GAAP results are made with the intent of providing both management and investors a more complete understanding of the Company's underlying operational results and trends and performance. Management uses these non-GAAP measures to evaluate the Company's financial results, develop budgets, manage expenditures, and determine employee compensation. The presentation of additional information is not meant to be considered in isolation or as a substitute for or superior to gross margins, operating income (loss), or net income (loss) determined in

5

accordance with GAAP. For more information, please see Shutterfly's SEC Filings, including the most recent Form 10-K and Form 10-Q, which are available on the Securities and Exchange Commission's Web site at www.sec.gov.

Notice Regarding Forward-Looking Statements
This media release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. These forward-looking statements include statements regarding the Company's growth and financial expectations for the first quarter, full year 2017 and full year 2018 set forth under the caption "Business Outlook," and statements about historical results that may suggest trends for our business. The Company's actual results may differ materially from those anticipated in these forward-looking statements. Factors that might contribute to such differences include, among others, economic downturns and the general state of the economy; changes in consumer discretionary spending as a result of the macroeconomic environment; the loss of sales partners for our products; our ability to expand our customer base, increase sales to existing customers and meet production requirements; our ability to successfully integrate acquired businesses and assets; our ability to retain and hire necessary employees, including seasonal personnel, and appropriately staff our operations; the impact of seasonality on our business; our ability to develop and implement innovative, new products and services on a timely and cost-effective basis, including our next generation Shutterfly platform; consumer acceptance of our products and services; our ability to develop additional adjacent lines of business; unforeseen changes in expense levels; and competition and pricing strategies of our competitors, which could lead to pricing pressure. For more information regarding the risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements, as well as risks relating to our business in general, we refer you to the "Risk Factors" section of the Company's most recent Form 10-K and Form 10-Q, and the Company's other filings, which are available on the Securities and Exchange Commission's website at www.sec.gov. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information.

# # #

About Shutterfly, Inc.
Shutterfly, Inc. is the leading online retailer and manufacturer of high-quality personalized products and services. Founded in 1999, the Shutterfly, Inc. family of brands includes Shutterfly, where your photos come to life in photo books, cards and gifts; Tiny Prints, premium cards and stationery for all life’s occasions; Wedding Paper Divas, wedding invitations and stationery for every step of the planning process; MyPublisher, one of the pioneers in the photo book industry and creator of easy-to-use photo book-making software; BorrowLenses, the premier online marketplace for photographic and video equipment rentals; and Groovebook, an iPhone and Android app and subscription service that prints up to 100 mobile phone photos in a GrooveBook and mails it to customers periodically. For more information about Shutterfly, Inc. (SFLY), visit www.shutterflyinc.com.
Contacts
Investor Relations:
Shawn Tabak, 650-610-6026
stabak@shutterfly.com
 

Media Relations:
Nicole Stier, 650-610-6013
nstier@shutterfly.com
 


6

Shutterfly, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)


 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Net revenues
$
561,226

 
$
548,080

 
$
1,134,224

 
$
1,059,429

Cost of net revenues
230,048

 
228,733

 
566,117

 
528,078

Gross profit
331,178

 
319,347

 
568,107

 
531,351

Operating expenses:
 
 
 

 
 

 
 

Technology and development
44,043

 
43,390

 
166,909

 
155,318

Sales and marketing
98,301

 
98,721

 
233,585

 
236,749

General and administrative
35,041

 
35,289

 
118,503

 
121,019

Total operating expenses
177,385

 
177,400

 
518,997

 
513,086

Income from operations
153,793

 
141,947

 
49,110

 
18,265

Interest expense
(5,961
)
 
(5,664
)
 
(23,023
)
 
(20,998
)
Interest and other income, net
122

 
89

 
501

 
744

Income (loss) before income taxes
147,954

 
136,372

 
26,588

 
(1,989
)
Benefit from (provision for) income taxes
(56,972
)
 
(5,258
)
 
(10,682
)
 
1,146

Net income (loss)
$
90,982

 
$
131,114

 
$
15,906

 
$
(843
)
 
 
 
 
 
 
 
 
Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
2.70

 
$
3.73

 
$
0.47

 
$
(0.02
)
Diluted
$
2.63

 
$
3.57

 
$
0.45

 
$
(0.02
)
Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
33,683

 
35,172

 
34,097

 
36,761

Diluted
34,625

 
36,743

 
35,190

 
36,761

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation is allocated as follows:
 
 
 
 
 
 
 
Cost of net revenues
$
1,143

 
$
989

 
$
4,579

 
$
4,134

Technology and development
2,854

 
3,096

 
8,550

 
10,840

Sales and marketing
3,748

 
4,310

 
15,445

 
21,512

General and administrative
4,659

 
2,232

 
17,118

 
23,972

 
$
12,404

 
$
10,627

 
$
45,692

 
$
60,458

 
 
 
 
 
 
 
 
Depreciation and amortization is allocated as follows:
 
 
 
 
 
 
 
Cost of net revenues
$
15,914

 
$
13,412

 
$
57,362

 
$
52,075

Technology and development
7,542

 
8,598

 
32,549

 
32,952

Sales and marketing
3,124

 
4,724

 
14,706

 
19,132

General and administrative
2,013

 
2,310

 
9,034

 
9,118

 
$
28,593

 
$
29,044

 
$
113,651

 
$
113,277


7

Shutterfly, Inc.
Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)

 
December 31,
 
December 31,
 
2016
 
2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
289,224

 
$
288,863

Short-term investments
26,352

 
22,918

Accounts receivable, net
57,365

 
55,222

Inventories
11,751

 
13,466

Prepaid expenses and other current assets
48,084

 
31,828

Total current assets
432,776

 
412,297

Long-term investments
14,479

 
29,005

Property and equipment, net
284,110

 
281,779

Intangible assets, net
43,420

 
62,323

Goodwill
408,975

 
408,975

Other assets
11,816

 
10,948

Total assets
$
1,195,576

 
$
1,205,327

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
58,790

 
$
35,329

Accrued liabilities
138,869

 
149,134

Deferred revenue, current portion
22,929

 
27,329

Total current liabilities
220,588

 
211,792

Convertible senior notes, net
278,792

 
264,361

Other liabilities
137,035

 
123,112

Total liabilities
636,415

 
599,265

Stockholders’ equity:
 
 
 
Common stock, $0.0001 par value; 100,000 shares authorized; 33,637 and 34,777 shares issued and outstanding on December 31, 2016 and December 31, 2015, respectively
3

 
4

Additional paid-in capital
949,864

 
900,218

Accumulated other comprehensive loss
(32
)
 
(68
)
Accumulated deficit
(390,674
)
 
(294,092
)
Total stockholders' equity
559,161

 
606,062

Total liabilities and stockholders' equity
$
1,195,576

 
$
1,205,327



8

Shutterfly, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Twelve Months Ended
 
December 31,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$
15,906

 
$
(843
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
93,531

 
86,290

Amortization of intangible assets
20,120

 
26,987

Amortization of debt discount and transaction costs
14,432

 
13,647

Stock-based compensation
45,692

 
60,458

Loss on disposal of property and equipment
738

 
1,755

Deferred income taxes
8,899

 
(2,149
)
Tax benefit from stock-based compensation
290

 
98

Excess tax benefits from stock-based compensation
(2,413
)
 
(1,813
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(2,142
)
 
(24,117
)
Inventories
1,715

 
(450
)
Prepaid expenses and other assets
(19,140
)
 
(7,436
)
Accounts payable
27,128

 
3,139

Accrued and other liabilities
(11,333
)
 
9,471

Net cash provided by operating activities
193,423

 
165,037

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(56,264
)
 
(55,448
)
Capitalization of software and website development costs
(33,423
)
 
(21,221
)
Purchases of investments
(29,422
)
 
(31,073
)
Proceeds from the maturities and sales of investments
40,447

 
73,454

Proceeds from sale of property and equipment
14,261

 
1,298

Acquisition of business and intangible assets, net of cash acquired
—

 
(127
)
Net cash used in investing activities
(64,401
)
 
(33,117
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock upon exercise of stock options
2,104

 
3,221

Repurchases of common stock
(112,488
)
 
(179,090
)
Excess tax benefits from stock-based compensation
2,413

 
1,813

Principal payments of capital lease and financing obligations
(19,377
)
 
(12,723
)
Prepayment of accelerated share repurchase
—

 
(75,000
)
Refund of accelerated share repurchase
—

 
38,179

Payment for contingent consideration liabilities
(1,313
)
 
—

Net cash used in financing activities
(128,661
)
 
(223,600
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
361

 
(91,680
)
Cash and cash equivalents, beginning of period
288,863

 
380,543

Cash and cash equivalents, end of period
$
289,224

 
$
288,863

 
 
 
 
 
 
 
 
Supplemental schedule of non-cash investing / financing activities:
 
 
 
Net increase (decrease) in accrued purchases of property and equipment
$
(4,013
)
 
$
3,818

Net increase (decrease) in accrued capitalized software and website development costs
(319
)
 
892

Stock-based compensation capitalized with software and website development costs
1,560

 
1,247

Increase in estimated fair market value of buildings under build-to-suit leases
—

 
17,161

Property and equipment acquired under capital leases
23,946

 
29,097

 

9

Shutterfly, Inc.
Consumer Metrics Disclosure

 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2016
 
2015
 
2016
 
2015
Consumer Metrics
 
 
 
 
 
 
 
Customers
6,219,011

 
6,141,073

 
10,115,763

 
9,750,590

   year-over-year growth
1
 %
 
 
 
4
 %
 
 
 
 
 
 
 
 
 
 
Orders
10,869,499

 
10,280,487

 
27,108,889

 
25,805,801

   year-over-year growth
6
 %
 
 
 
5
 %
 
 
 
 
 
 
 
 
 
 
Average order value [1]

$47.98

 

$48.96

 

$36.80

 

$37.26

   year-over-year growth
(2
)%
 
 
 
(1
)%
 
 

[1] Average order value excludes Shutterfly Business Solutions revenue.



10

Shutterfly, Inc.
Segment Disclosure
(In thousands)
(Unaudited)

 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2016
 
2015
 
2016
 
2015
Consumer
 
 
 
 
 
 
 
Net revenues
$
521,484

 
$
503,331

 
$
997,556

 
$
961,418

Cost of net revenues
198,949

 
189,125

 
455,387

 
436,050

Gross profit
322,535

 
314,206

 
542,169

 
525,368

Consumer gross profit margin
61.8
%
 
62.4
%
 
54.3
%
 
54.6
%
 
 
 
 
 
 
 
 
Shutterfly Business Solutions (SBS)
 
 
 
 
 
 
 
Net revenues
39,742

 
44,749

 
136,668

 
98,011

Cost of net revenues
28,673

 
37,090

 
100,582

 
79,789

Gross profit
11,069

 
7,659

 
36,086

 
18,222

SBS gross profit margin
27.9
%
 
17.1
%
 
26.4
%
 
18.6
%
 
 
 
 
 
 
 
 
Corporate [1]
 
 
 
 
 
 
 
Net revenues
—

 
—

 
—

 
—

Cost of net revenues
2,426

 
2,518

 
10,148

 
12,239

Gross profit
(2,426
)
 
(2,518
)
 
(10,148
)
 
(12,239
)
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
Net revenues
561,226

 
548,080

 
1,134,224

 
1,059,429

Cost of net revenues
230,048

 
228,733

 
566,117

 
528,078

Gross profit
$
331,178

 
$
319,347

 
$
568,107

 
$
531,351

 
 
 
 
 
 
 
 
Gross profit margin
59.0
%
 
58.3
%
 
50.1
%
 
50.2
%

[1] Corporate category includes activities that are not directly attributable or allocable to a specific segment. This category consists of stock-based compensation and amortization of intangible assets.


11


Shutterfly, Inc.
Reconciliation of GAAP Gross Profit Margin to Non-GAAP Gross Profit Margin
(In thousands)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Dec. 31,
 
Dec. 31,
 
2015
 
2015
 
2015
 
2015
 
2016
 
2016
 
2016
 
2016
 
2015
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP gross profit
$
65,271

 
$
87,232

 
$
59,501

 
$
319,347

 
$
72,986

 
$
94,369

 
$
69,574

 
$
331,178

 
$
531,351

 
$
568,107

Stock-based compensation
1,192

 
1,001

 
952

 
989

 
1,224

 
1,081

 
1,131

 
1,143

 
4,134

 
4,579

Amortization of intangible assets
2,849

 
2,014

 
1,713

 
1,526

 
1,452

 
1,424

 
1,409

 
1,283

 
8,102

 
5,568

Non-GAAP gross profit
$
69,312

 
$
90,247

 
$
62,166

 
$
321,862

 
$
75,662

 
$
96,874

 
$
72,114

 
$
333,604

 
$
543,587

 
$
578,254

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP gross profit margin
43
%
 
49
%
 
37
%
 
59
%
 
42
%
 
47
%
 
38
%
 
59
%
 
51
%
 
51
%

Shutterfly, Inc.
Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin
(In thousands)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Dec. 31,
 
Dec. 31,
 
2015
 
2015
 
2015
 
2015
 
2016
 
2016
 
2016
 
2016
 
2015
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP operating income (loss)
$
(46,224
)
 
$
(28,392
)
 
$
(49,066
)
 
$
141,947

 
$
(41,814
)
 
$
(21,075
)
 
$
(41,794
)
 
$
153,793

 
$
18,265

 
$
49,110

Stock-based compensation
17,760

 
16,315

 
15,756

 
10,627

 
10,150

 
10,924

 
12,214

 
12,404

 
60,458

 
45,692

Amortization of intangible assets
7,684

 
6,735

 
6,379

 
6,252

 
6,119

 
5,074

 
4,551

 
4,376

 
27,050

 
20,120

Non-GAAP operating income (loss)
$
(20,780
)
 
$
(5,342
)
 
$
(26,931
)
 
$
158,826

 
$
(25,545
)
 
$
(5,077
)
 
$
(25,029
)
 
$
170,573

 
$
105,773

 
$
114,922

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP operating margin
(13
)%
 
(3
)%
 
(16
)%
 
29
%
 
(14
)%
 
(2
)%
 
(13
)%
 
30
%
 
10
%
 
10
%

Shutterfly, Inc.
Reconciliation of Net Income (Loss) to Non-GAAP Adjusted EBITDA
(In thousands)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Dec. 31,
 
Dec. 31,
 
2015
 
2015
 
2015
 
2015
 
2016
 
2016
 
2016
 
2016
 
2015
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income (loss)
$
(45,103
)
 
$
(23,777
)
 
$
(63,077
)
 
$
131,114

 
$
(29,436
)
 
$
(16,485
)
 
$
(29,155
)
 
$
90,982

 
$
(843
)
 
$
15,906

Interest expense
4,736

 
4,985

 
5,613

 
5,664

 
5,675

 
5,661

 
5,726

 
5,961

 
20,998

 
23,023

Interest and other income, net
(102
)
 
(120
)
 
(433
)
 
(89
)
 
(121
)
 
(128
)
 
(130
)
 
(122
)
 
(744
)
 
(501
)
Tax (benefit) provision
(5,755
)
 
(9,480
)
 
8,831

 
5,258

 
(17,932
)
 
(10,123
)
 
(18,235
)
 
56,972

 
(1,146
)
 
10,682

Depreciation and amortization
27,593

 
27,707

 
28,933

 
29,044

 
29,114

 
28,357

 
27,587

 
28,593

 
113,277

 
113,651

Stock-based compensation
17,760

 
16,315

 
15,756

 
10,627

 
10,150

 
10,924

 
12,214

 
12,404

 
60,458

 
45,692

Non-GAAP Adjusted EBITDA
$
(871
)
 
$
15,630

 
$
(4,377
)
 
$
181,618

 
$
(2,550
)
 
$
18,206

 
$
(1,993
)
 
$
194,790

 
$
192,000

 
$
208,453



12

Shutterfly, Inc.
Reconciliation of Cash Flow from Operating Activities to Non-GAAP Adjusted EBITDA and Adjusted EBITDA minus Capital Expenditures
(In thousands)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Dec. 31,
 
Dec. 31,
 
2015
 
2015
 
2015
 
2015
 
2016 [3]
 
2016
 
2016
 
2016
 
2015
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
(107,731
)
 
$
22,171

 
$
(22,140
)
 
$
272,737

 
$
(82,610
)
 
$
16,916

 
$
(4,881
)
 
$
263,998

 
$
165,037

 
$
193,423

Interest expense
4,736

 
4,985

 
5,613

 
5,664

 
5,675

 
5,661

 
5,726

 
5,961

 
20,998

 
23,023

Interest and other income, net
(102
)
 
(120
)
 
(433
)
 
(89
)
 
(121
)
 
(128
)
 
(130
)
 
(122
)
 
(744
)
 
(501
)
Tax (benefit) provision
(5,755
)
 
(9,480
)
 
8,831

 
5,258

 
(17,932
)
 
(10,123
)
 
(18,235
)
 
56,972

 
(1,146
)
 
10,682

Changes in operating assets and liabilities
113,075

 
(6,803
)
 
134

 
(87,013
)
 
98,604

 
2,374

 
29,155

 
(126,361
)
 
19,393

 
3,772

Other adjustments
(5,094
)
 
4,877

 
3,618

 
(14,939
)
 
(6,166
)
 
3,506

 
(13,628
)
 
(5,658
)
 
(11,538
)
 
(21,946
)
Non-GAAP Adjusted EBITDA
(871
)
 
15,630

 
(4,377
)
 
181,618

 
(2,550
)
 
18,206

 
(1,993
)
 
194,790

 
192,000

 
208,453

Less: Purchases of property and equipment
(13,978
)
 
(17,199
)
 
(15,117
)
 
(12,972
)
 
(5,497
)
 
(22,005
)
 
(14,957
)
 
(9,792
)
 
(59,266
)
 
(52,251
)
Less: Capitalized technology & development costs
(4,072
)
 
(5,386
)
 
(6,353
)
 
(6,302
)
 
(8,168
)
 
(10,052
)
 
(8,819
)
 
(6,065
)
 
(22,113
)
 
(33,104
)
Add: Capex adjustments [1]
—

 
—

 
—

 
—

 
—

 
9,827

 
—

 
—

 
—

 
9,827

Adjusted EBITDA minus capital expenditures [2]
$
(18,921
)
 
$
(6,955
)
 
$
(25,847
)
 
$
162,344

 
$
(16,215
)
 
$
(4,024
)
 
$
(25,769
)
 
$
178,933

 
$
110,621

 
$
132,925

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
[1] In the second quarter of 2016, the Company acquired and immediately sold $9.8 million of printers.
[2] Adjusted EBITDA minus capital expenditures was referred to as "free cash flow" prior to the fourth quarter of 2016.
[3] The Company reclassified an immaterial contingent consideration payment (to Groovebook Founders) in the first quarter of 2016 between operating and financing activities within the cash flow statement.



13

Shutterfly, Inc.
Reconciliation of Forward-Looking Guidance for Non-GAAP Financial Measures to GAAP Measures
(In millions, except per share amounts)
 
Forward-Looking Guidance [1]
 
Three Months Ending
March 31, 2017
 
Twelve Months Ending
December 31, 2017
 
Low
 
High
 
Low
 
High
 
 
 
 
 
 
 
 
Net revenues [2]

$185.0

 

$190.0

 

$1,135.0

 

$1,165.0

 
 
 
 
 
 
 
 
GAAP gross profit margin
37.0
%
 
37.5
%
 
49.0
%
 
50.0
%
 
 
 
 
 
 
 
 
GAAP operating income (loss)

($48.0
)
 

($45.5
)
 

$48.5

 

$68.5

GAAP operating margin
(26.0
%)
 
(24.0
%)
 
4.3
%
 
5.9
%
 
 
 
 
 
 
 
 
GAAP operating income (loss)

($48.0
)
 

($45.5
)
 

$48.5

 

$68.5

Stock-based compensation

$12.4

 

$12.4

 

$49.0

 

$49.0

Amortization of intangible assets

$4.3

 

$4.3

 

$14.9

 

$14.9

Depreciation

$24.3

 

$24.3

 

$97.6

 

$97.6

Adjusted EBITDA

($7.0
)
 

($4.5
)
 

$210.0

 

$230.0

Adjusted EBITDA margin
(3.8
%)
 
(2.4
%)
 
18.5
%
 
19.7
%
 
 
 
 
 
 
 
 
Capital expenditures
 
 
 
 

$75.0

 

$75.0

Capital expenditures as % of net revenues


 


 
6.6
%
 
6.4
%
 
 
 
 
 
 
 
 
Adjusted EBITDA minus capital expenditures [3]
 
 
 
 

$135.0

 

$155.0

Adjusted EBITDA minus capital expenditures as % of net revenues


 


 
11.9
%
 
13.3
%
 
 
 
 
 
 
 
 
Tax rate
37.5
%
 
37.5
%
 
37.5
%
 
37.5
%
 
 
 
 
 
 
 
 
Net income (loss) per share
 
 
 
 
 
 
 
Basic

($1.00
)
 

($0.95
)
 
—

 
—

Diluted
—

 
—

 

$0.45

 

$0.80

 
 
 
 
 
 
 
 
Weighted average shares
 
 
 
 
 
 
 
Basic
33.7

 
33.7

 
—

 
—

Diluted
—

 
—

 
34.5

 
34.5

 
 
 
 
 
 
 
 
[1] Excludes expected restructuring charges ranging from $15 million to $20 million as well as any costs related to refinancing our convertible debt.
[2] In 2017, net revenues from SBS Segment to increase 20% over 2016.
[3] Adjusted EBITDA minus capital expenditures was referred to as "free cash flow" prior to the fourth quarter of 2016.


14